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Islamic Economic Studies

Vol. 17 No. 1, June, 2009

THE IMPACT OF DEMOGRAPHIC VARIABLES ON LIBYAN

RETAIL CONSUMERS’ ATTITUDES TOWARDS ISLAMIC

METHODS OF FINANCE

ALSADEK HESAIN A. GAIT

This paper investigates the extent to which Libyan retail consumers’ demographic

variables influence their attitudes towards potential use of Islamic methods of

finance. A self-administered survey, covering a random sample of 385 consumers

was conducted using phone interviews during the months of December 2007 and

January-February 2008 to gather their demographic variables and their opinions

towards Islamic methods of finance. Descriptive statistics is used to indicate the

main characteristics of the sample and potential use of Islamic methods of finance.

The results indicate that most of respondents (85.9%) are potential users of Islamic

methods of finance. Discriminant analysis is used to indicate which of these

demographic variables has much impact on the attitudes of Libyan retail

consumers towards Islamic methods of finance. This analysis illustrates that

professional status, monthly income, age and level of education are the most

important variables in discriminating between the two groups of retail consumers

(those who are potential users of Islamic methods of finance and those who are

not).

1. INTRODUCTION

Islamic finance is one of the most rapidly growing segments of the global

financial system. It is a financial system that is in accordance with the principles of

the Shar ah. The principles of Islamic finance are inferred to provide guidelines

to people in their financial transactions. The most significant of these principles is

the prohibition of rib and gharar which underpin commercial activities, also using

the profit/loss sharing between people or people and firms as a financial equity

method side by side to other Islamic methods of finance. There are many types of

Islamic methods of finance linked to different economic activities, but this study

focuses on those which are common in theory and practice, especially in Islamic

Faculty of Business & Commerce, Almergeb University, Al-koms, Libya, email:

[email protected]

mailto:[email protected]

2 Islamic Economic Studies, Vol. 17 No. 1

banks as institutions worldwide. These methods are: mu arabah, musharakah,

mur ba ah, bay mu’ajjall, bay al-salam, isti na , ij rah and qar al- asan (El-

Gamal 2000; Obaidullah 2005). Islamic banking theory is based in the main on the

prohibition of interest and the introduction of profit/loss sharing schemes and other

accepted methods of finance as well as offering banks’ operations such as deposit

accounts (Obaidullah, 2005).

While there are many Muslim and non-Muslim countries have been practising

these Islamic methods of finance in their financial institutions, Libya has not

introduced these methods of finance on a formal basis such as Islamic banks. This

could be seen unusual because most if not all Libyan people are Muslims (General

Information Authority 2007). Therefore, there are many issues regarding Islamic

finance in Libya still in need of investigation, such as the possibility of applying

Islamic methods of finance for Libyans.

This paper involves a study of the impact of demographic characteristics on the

attitudes of Libyan retail consumers towards Islamic methods of finance. More

particularly, the contribution of the paper is in the exploratory findings on the role

of various demographic variables on the opinions of Libyan retail consumers

towards potential use of Islamic methods of finance. The paper proceeds with

review of Islamic finance, including its sources, principles and most-common

products and services, in Section 2. A literature review related to the findings of

previous studies regarding this issue is presented in Section 3. Section 4 includes

brief information about the research methodology used to achieve the objectives of

this study. Descriptive statistics for the main characteristics of the sample and

potential use of Islamic methods of finance are provided in Section 5. A discussion

of empirical results (discriminant analysis results) is provided in Section 6. Section

7 concludes the paper by pointing out some future research directions.

2. REVIEW OF ISLAMIC FINANCE

Islamic finance is defined as a financial service or product principally

implemented to comply with the main tenets of the Shar ah (El-Gamal, 2000). In

turn, the main sources of shar ah are the Qur’ n, ad th, sunnah, ijm , qiyas and

ijtih d. The Qur’ n is the book of revelation given to the Prophet Muhammad

(peace be upon him); ad th is the narrative relating the deeds and utterances of the

Prophet; sunnah refers to the habitual practice and behaviour of Prophet

Muhammad during his lifetime; ijm is the consensus among religious scholars

about specific issues not envisaged in either the Qur’ n or the sunnah; qiyas is the

use of deduction by analogy to provide an opinion on a case not referred to in the

Qur’ n or the sunnah in comparison with another case referred to in the Qur’ n

and the sunnah; and ijtih d represents a jurist’s independent reasoning relating to

the applicability of certain Shar ah rules on cases not included in either the

Qur’ n or the sunnah.

Alsadek H Gait: The Impact of Demographic Variables … 3

In brief, the principles of Islamic finance are as follows: (i) the prohibition of

rib ( interpreted as usury or interest) and the removal of debt-based financing; (ii)

the prohibition of gharar, encompassing the full disclosure of information, removal

of asymmetric information in contracts and the avoidance of excessive risk-taking;

(iii) the exclusion of financing and dealing in activities and commodities regarded

as sinful or socially irresponsible (such as gambling, alcohol and pork); (iv) an

emphasis on risk-sharing, the provider of financial funds and the entrepreneur share

business risk in return for a pre-determined share of profits and losses; (v) the

desirability of materiality, a financial transaction needs to have ‘material finality’,

that is a direct or indirect link to a real economic transaction; and (vi) consideration

of justice, a financial transaction should not lead to the exploitation of any party to

the transaction [see El-Gamal (2000), Warde (2000), Lewis and Algaoud (2001),

Iqbal and Llewellyn (2002), Abdul-Gafoor (2003), Obaidullah (2005), Iqbal and

Molyneux (2005) and Gait and Worthington (2007) for suitable introductions to

Islamic finance].

In practical terms, these prohibitions and recommendations manifest themselves

as the following commercial products and services offered by Islamic financial

institutions: (i) mu rabah, the provision of capital to a partial-equity partnership

in return for a share of profits, but where the losses on funds lent are borne by the

lender; (ii) mush rakah, full-equity partnerships where the provider of funds and

the entrepreneur directly and wholly share in the business, (iii) mur ba ah, an

instrument used for financing the purchase of goods and services where the

financial institution purchases these on behalf of the customer; (iv) bay mu’ajjall,

deferred payments on products encompassed under mur ba ah; (v) bay al-salam,

advance or pre-paid sale contracts of goods and services; (vi) isti na , or

manufacturing contracts to cover work in progress and paid by the financial

institution on behalf of the customer; (vii) ij rah, lease financing in the form of

operating leases only; (viii) tak ful or Islamic insurance in the form of cooperative

self-help schemes, and (ix) qar al- asan, benevolent loans offered interest free.

In turn, these commercial products and services underlie the various depositor

and investor accounts offered to retail customers. In terms of Islamic banks, these

are again very similar to the products and services offered by conventional banks

with the exception that Islamic financing principles apply to the underlying bank

assets and liabilities. For example, unlike a conventional savings account, interest

is forbidden on balances in Islamic accounts. Depositors can, however, obtain

benefits in the form of ‘voluntary prizes’, whose value depends, in part, on the

deposit’s balance and the bank’s profitability. These services are often offered fee-

free to depositors.

Islamic products and services also increasingly manifest themselves as mutual

funds underpinned by investments in Shar ah-compliant equity or property, uk k

(Islamic bonds), tak ful (Islamic insurance) or ij rah (Islamic leasing) constructed


with Islamic principles in mind. For example, a Shar ah-compliant equity mutual

fund would, through a process of sector screening and dividend ‘purification’,

normally exclude: banking, insurance or any other interest-related activity; alcohol,

tobacco, gambling, armaments; any activity related to pork; other activities deemed

offensive to Islam; and any sectors or companies significantly affected by any of

the above.

2. LITERATURE REVIEW

While the determination of consumers’ attitudes towards Islamic banking has

been studied by many researchers in Muslim and non-Muslim countries such as

Erol and El-Bdour (1989); Erol, Kaynak, and El-Bdour (1990); Omer (1992);

Haron, Ahmad and Planisek (1994); Metwally (1996); Al-Sultan (1999); Gerrard

and Cunningham (1997); Hamid and Nordin (2001); Bley and Kuehn (2004);

Dusuki and Abdullah (2007); Rammal and Zurbruegg (2007), there was relatively

little related to the examining of the relationship between consumers’ demographic

and socioeconomic variables and their attitudes towards Islamic banking (Gait and

Worthington 2008). The first study was conducted in Egypt by Hegazy (1995) who

compared the demographic profiles of four hundred customers of two banks: the

Faisal Islamic Bank and Bank of Commerce and Development (a conventional

bank). The results showed that 98.8 percent of the Islamic bank’s customers were

married Muslims with children, while 32.4 percent of the conventional bank’s

customers were Christians and 54.3 percent were Muslims. This suggested that the

choice of an Islamic bank is based, in part, on a religious motivation.

Metawa and Almossawi (1998) surveyed three hundred Bahraini customers

using chi-square tests to determine the relationship between socio-demographic

factors and the customer usage of Islamic bank products and services. They

confirmed that there was a significant relationship between customer age and

Islamic bank products such as the usage of current accounts and ATM cards. On

the other hand they indicated that there were no observed patterns of relationship

between customers’ ages and other products of Islamic bank. In addition, there was

a significant relationship between customers’ income and the use of current

accounts and investment accounts. Customers’ level of education also showed a

significant relationship with the use of current accounts and Automated Teller

Machine (ATM) cards.

In Jordan, Naser, Jamal and Al-Khatib (1999) extended the early work by Erol

and El-Bdour (1989) and Erol, Kaynak and El-Bdour (1990), but used the Kruskal-

Wallis Test to examine the relationship between the degree of satisfaction towards

Islamic banking and other demographic variables. In general this study illustrates

that the respondents have certain degree of satisfaction towards Islamic bank

regardless of their demographic characteristics. However, nationality and religion

did not make any significant difference in the degree of customers’ satisfaction

towards Islamic banks. Metwally (2002) considered the role of socioeconomic and


demographic characteristics in the process of bank selection in Qatar. The results

suggested that females, the elderly and public servants preferred to deal with

Islamic banks over conventional banks, as did those with relatively low incomes

and a moderate level of education. In contrast, conventional banks were favoured

in Qatar by young, well educated working as professionals or highly-paid public

servants, with foreign conventional banks favoured over domestic conventional

banks by the relatively well-educated and wealthy.

Zainuddin, Jahyd and Ramayah (2004) also surveyed Malaysian bank

customers to illustrate the different perceptions of users and non-users of Islamic

banking services. They concluded that most Islamic bank users were older than

thirty with relatively stable family incomes. On the other hand, most non-users

were single, aged less than thirty years with low incomes. One important finding in

this study was that the decision-making processes of Islamic banks’ users were

affected by spouses, friends and relatives, as well as their innate religious

motivation. The final study is a work on the relationship between customer

satisfaction with interest-free banking and socio-demographic factors such as

gender, age, level of education and income in Turkey by Okumus (2005). It

indicated that the respondents, regardless of their age, gender practicing religion,

level of education and kind of employers expressed a certain degree of satisfaction

with most aspects of the SFHs (The Special Finance Houses). In contrast, other

factors such as number of years in business and monthly income did not show any

significant relationships in the degree of Turkish customers’ satisfaction with the

SFHs.

3. SAMPLE METHODOLOGY

A questionnaire was designed to collect the relevant data from Libyan

consumers. To ensure the speed of data collection, control of sample, good

flexibility, and reasonable cost, data was collected by filling the questionnaires

through telephone interviews. This method offers the researcher the opportunity to

reduce any potential respondent confusion about the questions asked and to obtain

a relatively high rate of cooperation (Hawes, Rao and Baker 1993). The sample for

Libyan consumers is selected randomly in accordance with a 95 per cent

confidence level. Therefore the sample size of the survey was 385 which were

determined using the following assumptions (Waters 1994). The proportion () is

.05, the safest possible assumption, a confidence level of 95% which corresponds

to Z-value of 1.96 and an error or precision (E) of 0.05. Given the above, the

optimal sample size N is estimated by:

2 21 /N Z E N = (0.5) (0.5) (1.96)2 / (0.05)2 N = 384.16 = 385

Before going into data collection, preparation and analysis, a focus group was

interviewed over the telephone. This group had a size of 20 (pre-screened)


respondents who represented about 5% of the sample. These interviews were to

ensure effective questionnaire for data collection without confusion and in

controlling time.

Following the focus group interviews, a survey was designed in final draft and

conducted during the three months from December 2007 to February 2008. The

respondents were selected at random using systematic sampling. The population

size was estimated using the telephone directory for Libya’s four largest cities:

Tripoli, Benghazi, Misratah and Al Murgub. The directory indicated 79,056 private

numbers in these cities. This number was regarded as the population size (i.e. P =

79,056) in this study. Dividing P by the sample size N = 385, the sample interval

equals 205. A random number between 1 and 205 was selected using the table of

random numbers (Malhotra and Birks 2003). That number was 48 and the sample

therefore consisted of elements 48, 253, 458, 663 and so on. Using the telephone

directory as a sampling frame, the elements were alphabetically organized. When

the number was not successful the next number on the same page was dialed.

The respondents were requested in the first part of the questionnaire to indicate

their knowledge about the existence of Islamic banks and their methods of finance.

The second part in the questionnaire was used to indicate the respondents’ attitudes

towards Islamic methods of finance. According to Malhotra (2006), a seven-point

scale is best suited for discerning individuals’ attitudes towards products and

services: this study used a seven-point scale from 1 to 7 where 1 is not important at

all and 7 is very important for 16 statements that represent reasons for the use of

Islamic methods of finance. The questionnaire also collected information on the

socioeconomic characteristics of the respondents. Descriptive analysis is used to

indicate the main characteristics of the sample and potential use of Islamic methods

of finance; discriminant analysis is used to determine which of these demographic

variables account the most impact on the Libyan consumers’ attitudes towards

using Islamic methods of finance (Metwally 2002 and Curhan & Kopp 1988).

5. DESCRIPTIVE STATISTICS

5.1 The Main Characteristics of the Sample

The main characteristics of the sample are shown in Table 1: 92.9% of the

respondents are males and 7.1% are females. The majority of respondents were

male because householders’ heads in Libya are generally men. According to Al-

Nouri (1995, p. 331), in Libya a boy is repeatedly reminded of the responsibilities

awaiting him when reaching adulthood, particularly his role as breadwinner,

husband and father. However, girls are kept in anticipation of marriage,

motherhood, and housekeeping. Accordingly, women in Libya and many other


Arab countries are still not readily welcomed to engage in gainful jobs. This socio-

cultural stance may account in part for women’s vast dependency on men (Al-

Nouri 1993). Therefore, males usually tend to make most financial decisions.

Table - 1

The main characteristics of the sample

Variables Frequency % Variables Frequency %

Sex Professional

status

Male 358 92.9 Public sector 292 75.8

Female 27 7.1 Private sector 46 11.9

Age Self-employed 41 10.6

Less than 25 years of

age

9 2.3 Retired 6 1.7

26 to 35 years of age 79 20.5 Income

36 to 45 years of age 123 31.9 Less than L.D 200

per month

17 4.4

46 to 55 years of age 153 39.7 201 to 300 per

month

211 54.8

More than 55 years

of age

21 5.6 301 to 400 per

month

138 35.8

Highest level of

education

More than L.D 400

per month

19 5.0

No education 9 2.3 Nationality

Primary school only 47 12.2 Libyan 376 84.9

High school only 94 24.4 Non-Libyan 9 16.1

Secondary school

only

61 15.8

Diploma only 116 30.1

University only 54 14.0

Postgraduate only 4 1.2

Over two-thirds (71.6%) of the respondents are aged 36 to 55. Approximately

45.9% of all respondents reached an education level at the diploma or secondary

level. However, about 14% of respondents completed university. Most people

interviewed (75.8%) are public servants (i.e. work in the government sector) and

only 10.6% are self-employed. 54.8% of the respondents have an average monthly

income of LD200 – 300 and approximately 35.8% had LD301–400. The majority

of the respondents (84.9%) are Libyans and only 16.1% are non-Libyans.


5.2 Potential Use of Islamic Methods of Finance

Libyan retail consumers were asked to indicate their intention to use Islamic

methods of finance. In particular, Table 2 indicates Libyan retail consumers’

potential use of Islamic methods of finance. Most of the respondents (85.9 %) are

potential users of Islamic methods of finance.

Table - 2

Libyan retail consumers’ potential use of Islamic methods of finance

Variables Frequency % Potential

user

% Not a

potential

user

%

Potential use of Islamic

methods of finance

Potential user 331 85.9 331

Not a potential user 54 14.1 54

Sex

Male 358 92.9 306 92.4 52 96.3

Female 27 7.1 25 7.6 2 3.7

Age

Less than 25 years of age 9 2.3 3 0.9 6 11.1

26 to 35 years of age 79 20.5 53 16 26 48.1

36 to 45 years of age 123 31.9 110 33.2 13 24.1

46 to 55 years of age 153 39.7 148 44.7 5 9.3

More than 55 years of

age

21 5.6 17 5.2 4 7.4

Highest level of

education

No education 9 2.3 9 2.7 0 000

Primary school only 47 12.2 29 8.7 18 33.4

High school only 94 24.4 87 26.2 8 14.8

Secondary school only 61 15.8 45 13.6 16 29.6

Diploma only 116 30.1 107 32.3 8 14.8

University only 54 14.0 51 15.3 4 7.4

Postgraduate only 4 1.2 4 1.2 0 000

Professional status

Public sector 292 75.8 285 86.1 7 12.9

Table-2 continued on next page


Variables Frequency % Potential

user

% Not a

potential

user

%

Private sector 46 11.9 39 11.8 7 12.9

Self-employed 41 10.6 4 1.2 37 68.5

Retired 6 1.7 3 0.9 3 5.6

Income

Less than L.D 200 per

month?

17 4.4 17 5.1 0 000

201 to 300 per month? 211 54.8 201 60.8 10 18.5

301 to 400 per month? 138 35.8 109 32.9 29 53.7

More than L.D 400 per

month?

19 5.0 4 1.2 15 27.8

Nationality

Libyan 376 84.9 327 98.8 49 90.7

Non-Libyan 9 16.1 4 1.2 5 9.3

However, only 14.1% of Libyan retail consumers are not potential users.

Therefore, most Libyan retail consumers are potential users of Islamic methods of

finance. From these potential users, 92.4% are male who are in majority (86.1%)

civil servants and who work in the public sector.

In addition, they are in majority Libyans (98.8%) who have an average monthly

income of LD200–300. Over three-fourth of potential users aged more than 36

years old with diploma or high level of education. However, most of the

respondents who are not potential users of Islamic methods of finance are younger

than 36 years old, self-employed (68.5%) and majority of them have monthly

income more than LD300. One explanation is that this group would prefer to deal

with conventional banks that provide them with funds in accordance with fixed or

variable interest rates.

6. EMPIRICAL RESULTS

As per questionnaire used in present study, the respondents were asked to

indicate their personal demographic and socioeconomic variables including, sex,

age, education, professional status, monthly income, nationality and their attitudes

towards potential use of Islamic methods of finance. Discriminant analysis is

performed on the first six variables as explanatory variables with the primary goal

of determining which of these variables account the most impact on the Libyan

consumers’ attitudes towards potential use of Islamic methods of finance. The

potential use of Islamic methods of finance is used as dependent variable. Thus,


consumers are divided into two groups, those who are potential users of Islamic

methods of finance and those who are not. The results of discriminant analysis are

shown as follows:

Table 3 gives discriminant analysis results that include information between the

mean and standard deviation for the two groups. The group means suggest that the

two groups are widely separated in terms of value of professional status, income,

age and education. Differences between the two groups are very insignificant due

to their dissimilarity in nationality and sex. The Wilks’ lambda statistic in Table 3

is calculated as the ratio of the within-groups sum of squares to the total sum of

squares. Because all the Willks’ lambda values are smaller than 1, the most of the

observed variability can be attributed to differences between groups (Norusis

2006). Moreover, the significance of the univariate ratios shows that, when the

predictors are considered individually, all predictors significantly differentiate

between the two groups (Metwally 2000).

Table - 3:

Group statistics, tests of equality of group means and pooled within-groups

matrices

Groups

Mean Std.

Deviation

Valid N (listwise)

Unweighted Weighted Unweighted Weighted

Not

potential

users

Sex 1.037 .190 54 54

Age 2.537 1.058 54 54

Education 3.333 1.359 54 54

Profession 2.666 .777 54 54

Income 3.092 .680 54 54

Nationality 1.092 .292 54 54

Potential

users

Sex 1.075 .264 331 331

Age 3.371 .844 331 331

Education 4.172 1.347 331 331

Profession 1.169 .468 331 331

Income 2.302 .582 331 331

Nationality 1.012 .109 331 331

Total Sex 1.070 .255 385 385

Age 3.254 .922 385 385

Education 4.054 1.378 385 385

Profession 1.379 .737 385 385

Income 2.413 .656 385 385

Nationality 1.023 .151 385 385

Table-3 continued on next page


Wilks'

Lambda

Univariate

ratios

df1 df2 Sig.

Sex .997 1.052 1 383 .306

Age .901 42.021 1 383 .000

Education .955 17.947 1 383 .000

Profession .501 381.470 1 383 .000

Income .825 81.501 1 383 .000

Nationality .966 13.577 1 383 .000

Correlation Sex Age Education Profession Income Nationality

Sex 1.00 -.028 -.022 -.011 -.030 .035

Age -.028 1.000 -.165 .193 .360 -.003

Education -.022 -.165 1.000 .001 .377 -.083

Profession -.011 .193 .001 1.000 -.019 -.067

Income -.030 .360 .377 -.019 1.000 -.079

Nationality .035 -.003 -.083 -.067 -.079 1.000

The pooled within-groups correlation matrix in the end of Table 3 is obtained

by averaging the separate covariance matrices for the two groups and then

computing the correlation matrix from the pooled-covariance matrix. This matrix

indicates remarkable low correlations between the variables. Therefore,

multicollinearity is not a serious problem in this analysis (Norusis 2006).

Table - 4:

Test results and log determinants

Box's M 230.741

F Approx. 10.531

df1 21

df2 32002.831

Sig. .000

Groups Rank Log Determinant

Not potential users 6 -6.924

Potential users 6 -10.062

Pooled within-groups 6 -9.025


Table 4 indicates the level of significant of Box’s M which suggests that we

should reject the null hypothesis that the covariance matrices are equal. This is

confirmed also by the logs of the determinants of the variance-covariance matrices

shown in Table 4. The logs of the determinants are quite different in value between

the two groups.

Table - 5

Eigenvalues and Wilks' Lambda

Function

Eigenvalue % of

Variance

Cumulative

%

Canonical

Correlation

1 2.475 100.0 100.0 .844

Test of

Function(s)

Wilks'

Lambda

Chi-square df Sig.

1 .288 473.323 6 .000

The eigenvalue in Table 5 is remarkably large (2.475) and it accounts for 100%

of the explained variance. The canonical correlation is another measure of the

degree of association between the discriminant scores and the groups. The

canonical correlation of the discriminant function is about 0.85. The square of this

coefficient shows that 72.2% of the variance of the dependent variable is explained

or accounted for by this model (Norusis 2006, Metwally 2003). The Wilks’ lambda

associated with the discriminant function in Table 5 is 0.288 which is the ratio of

the within-groups sum of squares to the total sum of squares. This can be

transformed to a chi-square value of 473.323, which is statistically significant at

the 0.0 level with degrees of freedom equal to the number of predictor variables.

Therefore, it is acceptable to reject the null hypothesis that respondents who are

potential users have the same average discriminant function score in the population

(Norusis 2006 and Malhotra and Birks 2003).

The absolute magnitude of the standardized canonical discriminant function

coefficients in Table 6, suggests that professional status (0.806), monthly income

(0.795), age (0.743) and highest level of education (0.546) are the most important

variables in discriminating between the two groups of retail consumers (those who

are potential users of Islamic methods of finance and those who are not). In other

words, professional status as a demographic variable has the most impact on the

retail consumer’s attitudes towards Islamic methods of finance (Malhotra 2006,

Metwally 2000).

Another way to assess the relative importance of the predictors can be obtained

by examining the structure correlations between the values of the function and the

values of the variables. Table 6 indicates that professional status, monthly income,

age and level of education respectively have much impact on Libyan retail


consumers’ attitudes towards Islamic methods of finance. Noticeably, there is an

agreement between the results of the standardized coefficient and the structure

matrix.

The group centroids in Table 6 shows the unstandardized canonical discriminant

functions evaluated at the group means. As shown, Group 1 (those who are not

potential users of Islamic methods of finance) has a positive value while Group 2

(those who are potential users of Islamic methods of finance) has a negative value.

Since the sign associated with the value of profession, income and nationality in

both standardized canonical discriminant function coefficients and structure matrix

is positive and since the age, level of education and sex have a negative sign, this

suggests that a person who is a self employed with relatively high income, small

age and low level of education will be among those who are not potential users of

Islamic methods of finance. Therefore, Islamic methods of finance will be

preferred by those who are public servants and old Libyans with relatively low

incomes.

Standardized canonical discriminant function

coefficients

Function

1

Sex -.040

Age -.743

Education -.546

Profession .806

Income .795

Nationality .190

Structure matrix Function

1

Profession .634

Income .293

Age -.211

Education -.138

Nationality .120

Sex -.033

Functions at group centroids Function

Groups 1

Not potential users 3.885

Potential users -.634


The classification matrix in the end of Table 6 gives hit ratio of 98.7% which

indicates highly significant classification for most cases included in the sample. In

other words there are only five cases that are misclassified and this is acceptable

when the non-potential user group is much smaller than the potential user group

(Norusis 2006). It is possible also to calculate the Press’s Q statistic for the sample

by:

2

/ 1Q N n k N k

Where: N is total sample size, n the number of observations correctly classified,

and k number of groups. The calculation gives a Q statistic equal to 365.2. The

critical value at a significant level of .01 is 6.63 which suggests that the predictions

are significantly better than chance (Metwally 2000).

Table - 6

Standardized canonical discriminant function coefficients, structure matrix,

functions at group centroids and classification results

Standardized canonical discriminant function

coefficients

Function

1

Sex -.040

Age -.743

Education -.546

Profession .806

Income .795

Nationality .190

Structure matrix Function

1

Profession .634

classification results

Predicted Group

Membership Total

Groups

Not

potential

users

Potential

users

Original Count Not potential users 51 3 54

Potential users 2 329 331

% Not potential users 94.4 5.6 100.0

Potential users .6 99.4 100.0

A 98.7% of original grouped cases correctly classified.


Income .293

Age -.211

Education -.138

Nationality .120

Sex -.033

Functions at group centroids Function

Groups 1

Not potential users 3.885

Potential users -.634

classification results

Predicted Group

Membership Total

Groups

Not

potential

users

Potential

users

Original Count Not potential users 51 3 54

Potential users 2 329 331

% Not potential users 94.4 5.6 100.0

Potential users .6 99.4 100.0

A 98.7% of original grouped cases correctly classified.

7. CONCLUDING REMARKS

The goal of this paper is to develop a better understanding of the effects of

various demographic variables on Libyan retail consumers’ attitudes towards

potential use of Islamic methods of finance. While most of the respondents (85.9

%) are potential users of Islamic methods of finance, which can be due the

religiously motivated people of Libya who are in majority Muslims, the

discriminant analysis indicates that it is possible to separate Libyan retail

consumers into two groups (those who are potential users of Islamic methods of

finance and those who are not) on the basis of some predictors which reflect on the

demographic variables of Libyan retail consumers.

The analysis shows that profession, monthly income, age and level of education

respectively have much impact on Libyan consumers’ attitudes towards potential

use of Islamic methods of finance. In other words, consumers who are public

servants with relatively low monthly income, older in age and moderate level of

education are potential users of Islamic methods of finance. In contrast, Libyan

retail consumers who are self employed with relatively high income, younger in

age and low level of education are among those who are not potential users of

Islamic methods of finance.


A number of directions for further research are indicated. First, little is still

known on how Muslims and non-Muslims are affected by religious convictions in

their financial decision-making. Despite the evolving literature on Islamic finance,

much work remains to be done on consumer behaviour using more sophisticated

choice modelling techniques and more extensive samples. Second, this work on the

impact of demographic variables on consumers’ attitudes towards Islamic finance

has been undertaken in a particular national context. It would then be interesting to

compare feedback from a survey administered in, say, a country with a

predominately Islamic finance system, to one done in a country with a dual-finance

system where there are other factors such as the effect of a subjective norm factor,

and another at an early stage of the introduction of Islamic finance. Finally, one

reason for the growth of Islamic finance worldwide has been the willingness of

national governments with a sectarian-orientation to support its establishment. It is

not known what particular role these governments have played in attempting to

modify the perceptions, attitudes and knowledge of Islamic banking alongside any

direct or indirect support or encouragement to the institutions themselves.

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